Crude currenciesBy Peter Rosenstreich
After a brief rally supported by speculation of tight supplies, crude oil crashed. WTI experienced its largest single-day fall since 2017, as supply increases hit the wires. Negotiations between OPEC and non-OPEC producers have moved faster than expected, but the biggest surprise was Saudi Arabia’s commitment to "work with major producers and consumers within and outside OPEC to mitigate the effects of any supply shortages." We suspect producers will marginally increase output limits. Meanwhile, US inventories increased for their 14th week. In summary: higher oil prices cannot be relied on to support growth and therefore commodity currency valuations.
Trade war weighs on AussieBy Arnaud Masset
The Reserve Bank of Australia left its official cash rate target unchanged at 1.50%, with positive statements about Australian and global economic developments. However, the bank noted that “household income has been growing slowly and debt levels are high”, and that there is “low growth in labour costs and strong competition in retailing.”
The trade war initiated by the United States could dampen Australia’s economic outlook. In an open economy reliant on exports, a trade war could have dramatic consequences; especially if the US slaps tariffs on products from China, Australia’s biggest trade partner. After rising more than 1% on Monday, AUD/USD edged lower on Tuesday as investors take a step back to assess how much juice is left in the Aussie. Yesterday, the currency pair tumbled on the 0.7660 resistance level (Fibonacci 61.8% on April-May debasement). A break of this resistance would open the door towards the following one that stands at 0.7813 (high from 19 April).
USD/CAD lowerBy Peter Rosenstreich
Canada’s trade balance is at record negative levels: additional oil revenues will not bridge the gap. Fear of a full-tilt trade war in steel and aluminium tariffs is weighing on growth. Manufacturing is close to overheating, yet households could tighten spending as housing markets weaken and credit tightens. Last week’s Bank of Canada meeting triggered a CAD rally as the central bank removed “cautious” from its monetary policy statements. This raises the likelihood of a July rate hike: higher interest rates could be the catalyst for a stronger CAD.